Tilting towards isas as a hrt payer

MEM62

Fatbritabroad wrote: »

Realise I'm in a fortunate position but with a child that's just been born in December I've realised I'm perhaps over tilted towards PENSIONS and having serious liquidity might be advantageous.

The polar opposite would be my opinion. You should be maxing out your pension contributions. With a 40% gain on the way in in terms of tax relief (and assumed 20% liability on the way out)there is no other mechanism of planning for future financial security that is anywhere near as tax-efficient.

Everything you put into your ISA has already had 40% creamed off the top by the tax man.

Fatbritabroad

MEM62 wrote: »

The polar opposite would be my opinion. You should be maxing out your pension contributions. With a 40% gain on the way in in terms of tax relief (and assumed 20% liability on the way out)there is no other mechanism of planning for future financial security that is anywhere near as tax-efficient.

Everything you put into your ISA has already had 40% creamed off the top by the tax man.

Thanks all that's really helped clarify
Will be increasing my pension Contributions forthwith lol

Anonymous101

MEM62 wrote: »

The polar opposite would be my opinion. You should be maxing out your pension contributions. With a 40% gain on the way in in terms of tax relief (and assumed 20% liability on the way out)there is no other mechanism of planning for future financial security that is anywhere near as tax-efficient.

Everything you put into your ISA has already had 40% creamed off the top by the tax man.

Also people always quote the 20% tax on the way out... this isn't strictly true in my opinion as say if you're drawing £25k a year from the pension. If you have no other income you'd effective only pay 10% tax since half of your income would be under the lower threshold.

Plus due to contributions coming via Sal Sac you're saving the NI. So overall the comparison is more like 42% on the contributions vs 10% on the way out until you hit state pension age.

AnotherJoe

And as if by magic ... in the Torygraph today

https://www.telegraph.co.uk/money/consumer-affairs/scrap-tax-relief-pensions-says-britains-biggest-stockbroker/?li_source=LI&li_medium=li-recommendation-widget

colsten

AnotherJoe said:

And as if by magic ... in the Torygraph today

https://www.telegraph.co.uk/money/consumer-affairs/scrap-tax-relief-pensions-says-britains-biggest-stockbroker/?li_source=LI&li_medium=li-recommendation-widget

You get these each and every year before the Budget. Scare people so that they will hastily top up their pensions. Usually it's Hargreaves Lansdown leading the scaremongering. Although one of these years, they may be right 

AnotherJoe

colsten said:

AnotherJoe said:

And as if by magic ... in the Torygraph today

https://www.telegraph.co.uk/money/consumer-affairs/scrap-tax-relief-pensions-says-britains-biggest-stockbroker/?li_source=LI&li_medium=li-recommendation-widget

You get these each and every year before the Budget. Scare people so that they will hastily top up their pensions. Usually it's Hargreaves Lansdown leading the scaremongering. Although one of these years, they may be right 

Agreed but I do think at some point they will be correct, 40% relief is living on borrowed time. 

Lomcevak

AnotherJoe said:

Agreed but I do think at some point they will be correct, 40% relief is living on borrowed time. 

I agree too - i'm a huge beneficiary of it (I use my full pension allowance every year, all from higher-rate taxable income) and losing it would be painful, but it's hard to justify. For me, it turns a comfortable retirement into a very comfortable early retirement, and that's not really the underlying problem with the overall pension system

For the OP, I'd agree with other posters. If it's any use as a data point, I'm a few years older than you, slightly larger salary, but my pension savings are much larger (ISA savings a little less, mortgage effectively paid off). What I found useful is to make a timeline of retirement income (how much you want, when you want it) and then work backwards to discover what you need to save. My goals are to retire no later than mid-to-late 50s with an income of at least the median wage (inflation adjusted going forward), while accommodating both the (possibly forced) potential need to downsize my job and the likelihood that higher-rate tax relief will be curtailed or eliminated at some point. Turns out, that needs a fair bit of saving! I did the calculations some years ago, and have maxed out my pension contributions ever since. Assuming current course and speed, will probably come close to the lifetime allowance before retirement but won't hit it.

ISAs most useful to bridge from an (enforced or intentional) drop in salary or early retirement in your 50s (as you say, those high-salary jobs are hard to replace, but it's nice to do without the stress and uncertainty if you can afford to), there's a risk that you can end up some years away from minimum retirement age with a large pension pot that you can't touch. I'm looking for at least 5 years income in ISAs for that reason, but it's lower priority than pension at present. Both ranked ahead of paying off the mortgage. 

Fatbritabroad

Lomcevak said:

AnotherJoe said:

Agreed but I do think at some point they will be correct, 40% relief is living on borrowed time. 

I agree too - i'm a huge beneficiary of it (I use my full pension allowance every year, all from higher-rate taxable income) and losing it would be painful, but it's hard to justify. For me, it turns a comfortable retirement into a very comfortable early retirement, and that's not really the underlying problem with the overall pension system

For the OP, I'd agree with other posters. If it's any use as a data point, I'm a few years older than you, slightly larger salary, but my pension savings are much larger (ISA savings a little less, mortgage effectively paid off). What I found useful is to make a timeline of retirement income (how much you want, when you want it) and then work backwards to discover what you need to save. My goals are to retire no later than mid-to-late 50s with an income of at least the median wage (inflation adjusted going forward), while accommodating both the (possibly forced) potential need to downsize my job and the likelihood that higher-rate tax relief will be curtailed or eliminated at some point. Turns out, that needs a fair bit of saving! I did the calculations some years ago, and have maxed out my pension contributions ever since. Assuming current course and speed, will probably come close to the lifetime allowance before retirement but won't hit it.

ISAs most useful to bridge from an (enforced or intentional) drop in salary or early retirement in your 50s (as you say, those high-salary jobs are hard to replace, but it's nice to do without the stress and uncertainty if you can afford to), there's a risk that you can end up some years away from minimum retirement age with a large pension pot that you can't touch. I'm looking for at least 5 years income in ISAs for that reason, but it's lower priority than pension at present. Both ranked ahead of paying off the mortgage. 

Thanks that's useful. I could afford to put more in my pension but like the idea of being financially independent sooner rather than later plus like I say liquidity at my age is useful . I had a goal to be able to retire at 50. Aiming for a million plus a paid off house effectively. I was planning on using the yield off the isa to pay chunks off the mortgage. I've also been sal saccing most of my retention bonuses in the last few years on top of my monthly pension contributions to boost it